• Strategy
  • CFO Asia

Who’s Got the Edge?

A new look at measuring shareholder value shows which management teams in Asia are truly delivering excess returns.

As CFO of Taiwan Semiconductor Manufacturing Corporation (TSMC), Lora Ho is no stranger to business cycles. Every few years, her industry is tossed violently from peaks of stretched production lines and handsome profits to troughs of bleak inactivity and desperate losses.

But just because the semiconductor industry as a whole is caught up in bruising rounds of boom and bust, Ho sees no reason why her company — a NT$256 billion-a-year (US$7.7 billion) contract chip manufacturer — should suffer the same fate. “While much of our performance is driven by factors in the economy beyond our control, we still believe we can shape our destiny,” states Ho. “If you look at our track record we’ve been consistently better than our competitors at managing the cycle. As managers we believe we can outperform.”

Ho’s claim is no hollow boast. A new study from CFO Asia shows that TSMC is indeed being managed by a team of superior executives who have outdone their peers time and again. The study was produced in partnership with the Singapore office of Marakon Associates, a strategy and management consultancy, and aims to identify the top management teams in Asia. Our yardstick was simple: Which managers are creating the most value for their shareholders?

Numerous other studies have attempted similarly lofty goals. As their benchmark, these surveys have tended to use total shareholder return (TSR) — share-price gains plus dividends paid — to show how much value a company has generated. But for our money, such an approach isn’t the most suitable when it comes to revealing what sort of role managers have played in creating value. As the stock-market bubble of the late 1990s showed, a rising tide lifts all boats, while an ebbing tide brings them all back down again. Share prices are constantly buffeted by factors that managers have no control over: the likes of interest rate changes, shifts in investor optimism, and the impact of natural catastrophes.

To truly see which management teams are adding the most value to their companies, a different approach is needed. To this end, CFO Asia and Marakon Associates have used a metric we call “company edge.” Put simply, this measure tots up a company’s TSR over a set period of time, and then strips out all background influences that are beyond the control of the company’s managers.

For our study, we calculated the five-year annual average TSR for the 462 biggest companies in Asia, except those in Japan. We then modified each company’s result to remove the average TSR of the country in which it’s based. Finally, we further modified the results to remove the average regional TSR of the industry sector for each company. What’s left is a measure of shareholder value that a company’s managers can reasonably take credit for creating — or destroying.

A “company edge” score of zero shows that a company has performed exactly in line with the broader market in its home country as well as in line with the rest of its industry across the region — and therefore created no excess value at all. A negative score shows that managers have destroyed value.


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